Optimal Taxation When the Allocation of Time Matters

Dr Maria Racionero and Prof Alison Booth

The labour supply model that underlies the standard optimal tax analysis assumes that time is divided exclusively between work and leisure. This dichotomy in the use of time contrasts with evidence from time use surveys, which show that individuals have alternative uses for their time besides work and leisure. Recent evidence also suggests that the pattern of time use has changed significantly in the last decades and that there is currently considerable heterogeneity in time use, particularly by education level. This project will explore the implications for optimal tax prescriptions of adopting alternative, more sophisticated models of time allocation that are able to capture the most salient features of recent time use evidence.

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